Chambers: Cory Johnson from Ripple is going to interview Neesha Hathi from Schwab, who is a chief digital officer there, and Rob Goldstein, who is a COO and heads all technology matters at BlackRock. We’ve got a great conversation with a great moderator, and I welcome them out there. Please.

Johnson: How much do you love John Chambers? That was just great. We’re going to talk about finance and technology. I’ve seen it from all sides. Obviously, I’ve seen it as a journalist, which I used to be, and now I see it as someone who is selling software to financial institutions, which is what we do at Ripple, whether it’s banks or whatever. But you guys are in a very interesting spot. We’ve got two companies in Schwab and in BlackRock that are increasingly consumer-based—always consumer-facing at Schwab. Consumer-facing, but we live in a time when the possibilities are very different. I wonder Rob, if I can start with you, how do you look at the most important things for you to capture. Because I’ll say—not for too long a question—but banks have the largest IT budgets in the world, and they’ve got the opportunity to do almost anything. They also have these deep, often archaic financial structures internally to deal with. How, as the chief operating officer at BlackRock, do you try to take advantage of the opportunity the technology, the new technology, can bring?

Goldstein: And it’s interesting. Let me start out by clarifying that BlackRock is not a bank. As the world’s largest investment manager, it’s actually quite interesting, because the capabilities that we have, particularly from a technology perspective, have been designed over multiple decades to analyze portfolios. The capabilities are designed to provide great risk transparency into how one would construct portfolios. What we’ve been doing from a technology perspective initially started out as leveraging those capabilities internally, and then actually providing those capabilities to other very large asset owners. Now most recently—and this has really been a remarkable thing empowered and fueled by all of the technology themes that we’re all quite familiar with—but most recently we’ve been providing the capabilities that we developed for very large asset owners. We’ve been providing them to some of our wealth management partners so they could actually use them to build better portfolios for their end customers.

Johnson: So you’re essentially going down the funnel to smaller piles of assets, but it sounds like you start with eating your own soup.

Goldstein: We eat our own cooking, and Cory, it’s actually very interesting, because to a group of us who have had the opportunity to do this for a long time, our dream was always—how do we democratize these capabilities that the world’s largest and most sophisticated investors were using, how do we democratize them to, like, our parents? I think part of what was driving us was maybe that our parents would understand what we actually do for a living if they could see the output of what we do. [LAUGHTER] But we used to view it actually as an impossible mission. It was impossible because just the amount of information processing that would be required was beyond what was reasonable from a compute perspective and today that’s been unlocked through the changes in technology that we’re all very aware of. What’ really cool is that to a large degree what really fueled a lot of these efforts and the product that we’ve been primarily providing to wealth managers, it actually came from a hack-a-thon that we did internally, where myself and some of my colleagues were sitting there as this team was presenting it, and we were sort of whispering to ourselves, “Is this real? Are we really seeing something that’s real?” And we effectively saw the impossible. That’s the best thing about technology.

Johnson: What did it look like? What were you seeing?

Goldstein: It looked like a—we have very sophisticated risk analytics that we provide to very large asset owners, and they are complicated—this looked like a very simple version of those. Normally when you provide it to a very large asset owner it will be for hundreds and thousands of portfolios. It was showing us the same very simple analysis for a million portfolios. When we were watching this demo we were trying not to get too excited in the room because we were technically hosting the hack-a-thon, but when we were seeing this demo we were amazed. We were jumping out of our skin because we were seeing the impossible. I think one of the greatest things about technology is that if you’re in it long enough you get the chance to see the impossible every few years.

Johnson: So Neesha, as chief digital officer at Schwab, what does a Schwab customer see today that they might not have seen five years ago because of initiatives that you guys have rolled out?

Hathi: You know, the focus of Schwab, since Chuck founded the company 45 years ago, has always been around democratizing—actually a similar word—democratizing investing for retail investors. What that used to mean was that you had access to platforms to trade or access to transferring assets, or getting lots of advice but probably more do-it-yourself advice. Over the last several years—

Johnson: You mean like look something up on the website, find—“What is this CDO I just bought?”

Hathi: Exactly. [LAUGHTER] Research on equity, research on a mutual fund, tools to create portfolios that you could create yourself and figure out how you wanted to rebalance them and trade them. But very much self-service oriented. We call it the heritage self-directed investor, where folks who really knew what they wanted—

Johnson: The heritage self-directed investor?

Hathi: The heritage self-directed investor.

Johnson: You mean like a tomato, but different? [LAUGHTER]

Hathi: Not the older, but the heritage self-directed investor.

Johnson: Think about heritage investors.

Hathi: [LAUGHTER] Well, nowadays we call them modern self-directed investors. The modern self-directed investor lives in the world that we all live in, which is there is a lot of information out there, and what I want help with is navigation. I want to know what’s right for me, and I expect it to be personalized and I expect it to be thoughtful and transparent and not make me compromise between low-cost and great service. So the capabilities and the offers and experiences that we’ve launched over the last few years are much more focused on that. If I think of our robo platform, our Schwab Intelligent Portfolios platform, or Schwab Intelligent Advisory, the whole idea there is to automate everything that we can, provide it in a very curated, navigable way for an investor, and then use the technology to try to bring the cost down for the investor and focus our people on the things that we think people do best, which is a lot more of that emotional connection, asking the question behind the question.

Johnson: Well let me as about that. John Chambers was just talking about the value in asking questions and listening as opposed to telling. Whenever I’m on board with some new financial product the questions about my risk tolerance, they feel so wrong for me. I know how to end up so I’m allowed to trade options, so I can just say, “I love lots of risk, I’m totally willing to lose all of my money,” and all that, and those answers were so wrong. I understand risk in a way that, as a professional investor for a while I get it, I understand risk in very different ways, I’ve seen very big swings over the years and I understand how it works, but those questions never felt like they understood me at all.

Hathi: Yes. I think this is actually a great opportunity that we in financial services have a responsibility to figure out how to solve, which is how do we dimensionalize risk better? Because what we do today—I think of that Intelligent Portfolio’s flow—there are three different questions, which—

Johnson: Intelligent Portfolio is your robo advisor.

Hathi: Is the robo advisor. And I think about how you go through basically ten questions, and during those ten questions that are three questions that actually focus on your risk tolerance and your appetite for risk, everything from, “How would you feel about your portfolio sliding 20% in a day?” to actually putting numbers around that based on whatever you think you might want to invest, trying to really dimensionalize it. I just think as an industry we haven’t done a great job for the average consumer to help them understand what it means to take a certain amount of risk versus a certain kind of reward.

Goldstein: If I could just add to that, I think that the challenges in industry—and this is another example of something that I think technology provides the opportunity to solve—I think the industry to a large degree has developed in terms of building investment products and people buying great investment products, but having a collection of great investment products doesn’t necessarily help you achieve the outcome that you’re aspiring to. Even the concept of a risk tolerance questionnaire inherently implies that each product you buy is going to meet that risk tolerance, as opposed to—what are you actually trying to do? What are you aspiring to? What is the outcome that you are striving for through your investment portfolio? And then working backward from there. It’s such a product orientation, as opposed to—let’s start with the outcome—

Hathi: The goals.

Goldstein: The goals—and then work backward through technology to really build a portfolio that best helps you achieve those goals.

Johnson: It sounds like you’re talking more about eHarmony than Tinder, for example. [LAUGHTER] Right? No—I’m not going to fall for that, but let me ask you, though, Rob—and I’d like to hear from both of you—when you look across the world of technology, what are the customer experiences that you think you’re providing or about to provide for your customer?

Goldstein: One of the things that we do at BlackRock through our Aladdin platform is we provide roughly 30,000 users at large asset owners. It’s an enterprise piece of technology. I think one the most meaningful things going on with regard to a technology trend that doesn’t get a whole lot of attention—or maybe doesn’t get enough attention—is that enterprise platforms traditionally have been built assuming that the end user loves to do his or her job. [LAUGHTER] And the reality is that has just been what the philosophy has been. They made me take away my phone—

Johnson: But also people in the financial business like being in the financial business, and it’s hard to think that other people are different. I think everybody in every industry has that thing, where they think that everyone else is like them.

Hathi: Yes.

Goldstein: But I think what has happened is that everyone’s expectation today in terms of technology, even if you are a user of a very sophisticated enterprise platform like Aladdin, everyone’s perspective is that it should be as easy as your phone. The phone is setting the expectation with regard to all user interfacing, no matter if it’s to order pizza, razors, or to figure out risk management for a $3 billion portfolio. That trend, I think, is in very early days, but I think it’s going to have a profound impact on both the financial industry and any other industry.

Hathi: If I think about what we’ve been focused on for the last many years—we serve the mass affluent investor, the average investor, and they’ve been experiencing their phones since, what, 2007 or whenever? So we’ve had this trend for a long time of investors wanting simplicity. “I don’t want the paper, I don’t want to sign the document.” And we still work in an industry where most people sign papers and fax things in. I mean, who has a fax machine?

Johnson: It’s simply amazing.

Hathi: Right? It’s unbelievable. One of the mantras we talk about internally is, “Simplicity is the new innovation.” We talk about that to help remind all of ourselves often that taking the paper out of a process, streamlining something so you can do it all on your phone—those things are powerful for investors. Sometimes we get caught up in talking about all these wonderful new technologies—which we invest in as well, it’s not that we don’t believe in them—but there are a lot of the basics that can make a huge difference for the average investor that we need to focus on.

Johnson: Is that mostly in the clearance of transactions? Because that has been an intensely paper-consuming effort for a long time—forever.

Hathi: Yes. Trading is mostly automated and very simply done, but I think about transferring money, because we work in an industry where fraud is a risk, and trust and security have to be—

Johnson: Transfer money is all my company does, so I think a little bit about it too, yes.

Hathi: You know it, right? [LAUGHTER] You think about the paper aspect of that, or even just opening up a brokerage account. Opening up a brokerage account is a paper-laden experience for many folks, especially depending on the type of trust account or organizational account, depending on what you are trying to do.

Johnson: I do them across borders. Moving money across borders—we were talking about this this afternoon—it’s impossible.

Goldstein: I’ll confess, last week I had them open an account for something, and I needed to call for help. I couldn’t figure out how to get through the forms, which was very embarrassing, but at the same time, they’re impossible for normal or better-than-normal humans to actually understand. They are just impossible to get through.

Johnson: And I think this gets to the notion of our panel, which is that there are people to whom our financial system, particularly for investing, does not touch. It does not touch a lot of people who would really be helped from the ability to invest. We know the stories. Some significant percentage of Americans are $400 away from being completely broke, say one paycheck. We hear the discussion of that when election results come in, but I don’t know if we think about that when we are thinking about the ability of people to invest. Do you guys see a market—or maybe I should ask it more detailed. Where do you see a market that is just outside the walls of where you guys are each at right now that technology will help you get to?

Hathi: For us, it is fairly simple, in that we want to be able to have more everyday clients who are able to invest. Today investing—there is a barrier to invest unless you have a certain amount of money and to invest logically, not just buy a product. One of the things that we worked on a couple years ago is a digital financial plan. To get to the goals that Rob was highlighting, what you need is a financial plan, and often you need to talk to somebody, but sometimes you can work that on your own if you have the right types of tools and guidance, but most investors don’t have that, and don’t have the access to a certified financial planner, because they can’t afford it.

Johnson: They don’t teach that in school?

Hathi: [LAUGHTER] They should, I think.

Johnson: And if they don’t?

Hathi: These are the basics, and most investors can’t access that because they don’t have the wealth. So in order to drive down the cost of a digital financial plan, let’s say, we need to leverage technology. Essentially we think about it as the technology, the foundation, we wrap it all around a CFP, a certified financial planner, so we can use that certified financial planner very specifically on that emotional connection, on making sure that the client really understands what they are asking for, or educating them, and then the technology can do the rest. By doing that we can drive down the cost of investing.

Johnson: Let me get back to that. Where is that customer, what does that customer look like? Are they younger, are they less affluent? Are they Spanish-speaking?

Hathi: Well, our population is changing, and that’s exactly—when we look at Schwab clients, for example, who came in last year, about 54% of Schwab clients who came in last year are 40 or younger. Schwab is a 45-year old company, so we are bringing in lots and lots of younger investors, demographically representing what our nation represents. Now, I think that we still have a challenge in those investors, those folks who don’t even know that they should be investing. They are in their 401(k)s and they are trying to figure out what to do with an IRA—

Johnson: Paying off school debt.

Hathi: Paying off school debt, right? We still have a huge opportunity, but I think that technology has to be the key to drive down the cost of investing and help it become more accessible to those people.

Johnson: Rob?

Goldstein: I don’t think we can underestimate the access that technology provides with regard to—there is often this debate between human versus machine. Well, the reality is in financial services a lot of people with lower wealth points can’t afford the human. They just can’t afford the human advice, it’s expensive. So the ability to give them access to technology solutions, to digital advice solutions, is a really important element of society when you look at many of these gaps, particularly retirement gaps as we just referenced. At BlackRock, our deep passion is that we believe we’re really good at helping people have transparency into portfolios and building portfolios, and it’s our ambition to try to get those capabilities, to democratize them in the greatest way possible and get them in the hands of as many individuals as possible. And I think it’s a good thing. If people had more access to build better portfolios, funny enough, it’s actually not only good for the individuals, I think it’s very important to society and many of the looming challenges that we face just as the civilized world.

Johnson: It’s interesting to me that we’ve seen some volatility in the market. October was a month where there was a lot of red on the screen, which as a recovering short-seller is always a good month for me, but bad for everybody else. But those are the times I feel like you have the opportunity in your industry to hear from your customers, and maybe hear from new customers. I told you this story, Rob. When I was a short-seller and my screen was covered with green and I was pulling my hair out, I would call other short sellers, because they would complain to me about some stock that they thought was a fraud and I would add that to my list of things to research. But that was a good idea, and I would imagine that’s also the time you guys get a chance to hear from your customers and help them along.

Hathi: Absolutely. Yes, especially in those digital advice offers. What we see is during those times of volatility our call volume spikes. We have lots more volume of folks calling in and asking questions. The nice thing is that once they talk to somebody they often stay invested, so they don’t sell at the wrong time, which is typically otherwise what people do without that conversation. So it really does that combination of people and technology is very powerful. We just have technology do a lot of the heavy lifting so the person can do that—again—calm that person, give them the education that they need in that moment when they’re worried.

Goldstein: And just critically important from an investing perspective: the number one asset most people have is time. The number one asset that most people don’t take advantage of is time. The whole key in terms of giving people more financial literacy, in terms of building wealth, is that concept of patience and patient investing, going back to the outcome that you are striving for. For most people, the investments that they are creating offer an outcome that is really long term. As we all know, the sooner you invest—it’s the Warren Buffett—the miracle of compound interest, the ability to do that very early and capture that benefit and stick with it is where technology can be dangerous, because everybody has that screen that only professionals had previously, but also quite important in terms of ongoing opportunities.

Johnson: The only thing we don’t have is time, but thank you very much, Rob Goldstein and Neesha Hathi, thank you very much. I appreciate it.